Do you sell or stay in the game? Is it time to consider selling your collision repair business, or do you make the investment that will be necessary to be a formidable competitor? This is a question that is on the minds of many auto body and collision repair business owners these days.
Staying In
If you decide stay in the game, it will be critical to your success – today and in the future – to demonstrate your ability to create and deliver the best performance of quality, speed and cost to your customers while being profitable.
You must also consider today’s realities and the future of the auto body repair industry:
- The demand for auto body repair is shrinking and will continue to shrink.
- The total-loss rate is on the rise; it has doubled over the past two decades and continues to increase.
- Tougher driving laws and more enforcement of driving laws
- The focus on reducing distracted driving (47 percent of all accidents are the result of distraction)
- Accident avoidance technology is going to increase on all brands and models.
- Autonomous vehicles
When it comes to profit, consider these market trends:
- Increased use of lower-priced, less profitable parts
- Increasing overhead (additional people, resources, information technology, training, equipment and tooling)
- Pressure on severity from work providers will continue; expect more cost-saving measures by payers.
- Increased expenses required to attract work due to sophisticated competition moving in and gaining some of your market share
- Cost of acquiring technicians
- Training and certification costs
- Overall labor costs will continue to rise.
Shortage of Qualified People
- The majority of collision businesses cannot find people needed today, from estimators and CSRs to technicians, painters and even detailers.
Advanced Automotive Technology
- Requires increased training, equipment, tooling and facility upgrades
Adequate Capitalization
- Needed to fund required training, services, equipment, tooling and facilities
Tougher Competitive Landscape
- Nearly 50 percent of the total market for auto body repair is serviced by high-volume multi-location organizations, networks and franchises, many of which didn’t exist two decades ago. These MSOs’ advantages include:
- Business savvy
- Insurance relationships
- Capitalization
- Economies of scale
Insurer Influence
- Insurers pay for 90 percent of all collision repairs – they have a huge stake in the quality, speed and cost of auto body repair.
- The top 10 insurers influence 80 percent of all collision repairs.
- Most have established repairer networks (and waiting lists of repairers who want to join).
- Most have a direct-repair claims model.
- Most continue to increase the percentage of claims through direct repair.
- Most insist on the use of lower-priced, less profitable parts.
- Most are holding repairers accountable for quality, speed and cost performance.
- Most measure customer satisfaction (quality), length of rental (speed) and severity (cost).
- Most reward the best performers and pressure the under-performers.
- Cost of participation (tooling, equipment, technology, workplace training, third-party services, certification and annual certification cost)
- Severity-saving measures that are enforced
OEMs
- The top 10 OEMs make 80 percent of all vehicles on today’s roadways.
- The OEMs’ influence is growing (source of work, repair methods, performance, etc.).
- Increasing promotion and referrals supporting certified shops
- The high cost of OEM certification (tooling, equipment, technology, workplace training, third-party certification and annual certification cost)
Competitive Landscape
- Competing for customer pay, insurance, OEM referrals and people
- Consolidation (big getting bigger, capturing market share at the expense of the middle market)
- Improvement needed to be competitive today and in the future
Critical to Success
Critical to success today and in the future is your organization’s ability to create and deliver the best quality, speed, cost and profitability. If you agree with this statement, delivering the best performance of quality, speed and cost is at the top of the list – even though there are hundreds of things that could be improved.
There is a tremendous amount of planning, ongoing training and costs to get your team up to speed:
- Quality that includes and goes beyond workmanship to the customer experience, documentation, relationships, and people and culture
- Speed that includes technician and production efficiency but goes well beyond that, with a focus on cycle time
- Cost that goes beyond traditional thinking to include a focus on eliminating the cost of waste
Summary
If the above sounds like it’s too much for you, then you may want to consider selling while there are buyers out there.
I receive calls and emails from owners who are considering getting out quite often. Sometimes, it makes sense for both parties.
If you would like to get specific information and advice on what a sale would look like, I can be reached at [email protected].
